Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management performed, with the participation of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), an evaluation of the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this Annual Report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2023 due to the material weaknesses in its internal control over financial reporting described below.
However, after giving full consideration to the material weaknesses described below, and the additional analyses and other procedures management performed to ensure that its consolidated financial statements included in this Annual Report were prepared in accordance with U.S. GAAP, the Company’s management has concluded that its consolidated financial statements present fairly, in all material respects, its financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, our management used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements may not be prevented or detected on a timely basis. The Company did not maintain an effective control environment as it lacked sufficient oversight of activities related to its internal control over financial reporting due to a lack of appropriate level of experience and training commensurate with its financial reporting requirements. Further, due to rapid business growth, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting, which resulted in the Company not designing and maintaining effective controls related to substantially all accounts and disclosures. These material weaknesses contributed to the following additional material weaknesses as of December 31, 2023:
• The Company did not design and maintain effective controls to verify appropriate accounting for complex financing transactions.
• The Company did not design and maintain effective controls to verify appropriate segregation of duties, including assessment of incompatible duties, identification of instances where incompatible duties were assigned to an individual, and addressing conflicts on a timely basis.
• The Company did not design and maintain effective controls over certain information technology (IT) general controls over information systems that are relevant to the preparation of the Company’s financial statements. Specifically, the Company did not design and maintain: (i) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel; (ii) program change management controls to ensure that program and data changes are identified, tested, authorized and implemented appropriately; and (iii) computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored.
The material weaknesses related to the control environment, risk assessment and complex financing transactions resulted in the revision of the consolidated financial statements as of and for the periods ended September 30, 2022, December 31, 2022, March 31, 2023, and June 30, 2023. The material weaknesses related to segregation of duties and IT
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general controls did not result in a misstatement to our annual or interim consolidated financial statements. Additionally, the material weaknesses could result in misstatements to substantially all of our accounts and disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected.
Because of these material weaknesses, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2023.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under Item 8.
Remediation Efforts for the Material Weaknesses
We are in the process of designing and implementing controls and taking other actions to remediate the material weaknesses described above. Specifically, during the quarter ended December 31, 2023, we implemented measures designed to improve our internal control over financial reporting to remediate the material weaknesses, including the following:
• Engaged a third party to perform a risk assessment that includes the identification and walkthrough of key business processes and conducting design and operational control testing to address key risks.
• Completed a segregation of duties assessment identifying key conflicts and mitigating controls.
• Initiated the design and implementation of a Segregation of Duties automated tool for our Enterprise Resource Planning (ERP) system. We also began the design and implementation of similar controls for the remaining financially relevant applications.
• Initiated the design and implementation of controls related to the review of Service Organization Control reports, which cover program change management and computer operations for many of the applications that we rely on for financial reporting.
• Developed policies and procedures for the quarterly user access review of all users with access to the financially relevant systems and then implemented the quarterly user access review for one design cycle.
• Initiated the design and implementation of the controls related to review and approval of complex financing transactions.
• Completed the implementation of an automated month and quarter-end accounting close workflow tool to facilitate the review and support of key financial close process controls.
The material weaknesses will not be considered remediated until management completes the design and implementation of the measures described above, the controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are effective.
Changes in Internal Control over Financial Reporting
As described above in the section “Remediation Efforts for the Material Weaknesses,” there were changes in our internal control over financial reporting during the quarterly period ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Insider Trading Arrangements
During the fiscal quarter ended December 31, 2023, the following Section 16 officers and directors adopted, modified or terminated a “Rule 10b5-1 trading arrangement” (as defined in Item 408 of Regulation S-K of the Exchange Act):
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• Dr. Keyvan Mohajer , Chief Executive Officer and Director , adopted a new trading plan on December 12, 2023 (with the first trade under the new plan not to be made prior to March 12, 2024). The trading plan will be effective until June 7, 2024 and provides for the sale of up to 1,800,000 shares of Dr. Mohajer’s 15,439,064 shares of Class B common stock. up to 833,435 shares of Class A common stock issuable upon exercise of outstanding options, and up to 355,000 shares of Class A common stock issuable upon vesting and settlement of certain RSUs and PSUs, provided that certain conditions are met.
• Dr. Seyed Majid Emami , Chief Science Officer and Senior Vice President of Engineering , adopted a new trading plan on December 8, 2023 ( with the first trade under the new plan not to be made prior to March 8, 2024). The trading plan will be effective until November 30, 2024 and provides for the sale of up to 1,950,000 shares of Dr. Emami’s 18,033,756 shares of Class B common stock and up to 666,748 shares of Class A common stock issuable upon exercise of outstanding options, provided that certain conditions are met.
• James M. Hom , Chief Product Officer and Director , adopted a new trading plan on December 8, 2023 ( with the first trade under the new plan not to be made prior to March 8, 2024). The trading plan will be effective until May 31, 2024 and provides for the sale of up to 2,000,000 shares of Mr. Hom’s 4,012,588 shares of Class B common stock and up to 100,000 shares of Class A common stock issuable upon vesting and settlement of certain RSUs and PSUs, provided that certain conditions are met.
There were no “non-Rule 10b5-1 trading arrangements” (as defined in Item 408 of Regulation S-K of the Exchange Act) adopted , modified or terminated during the fiscal quarter ended December 31, 2023 by our directors and Section 16 officers. Each of the Rule 10b5-1 trading arrangements are in accordance with our Insider Trading Policy and actual sale transactions made pursuant to such trading arrangements will be disclosed publicly in Section 16 filings with the SEC in accordance with applicable securities laws, rules and regulations.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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Part III
The information required by Part III is omitted from this Annual Report in that we will file a definitive proxy statement pursuant to Regulation 14A with respect to our 2024 Annual Meeting (the "Proxy Statement") no later than 120 days after the end of the fiscal year covered by this Annual Report, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included in the Proxy Statement.
Item 11. Executive Compensation
The information required by this item will be included in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters .
The information required by this item will be included in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in the Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item will be included in the Proxy Statement.
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Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
1. Financial Statements : See Index to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.
2. Financial Statement Schedules : All schedules have been omitted as the requested information is not applicable or the information is presented in the consolidated financial statements or related notes included in this Form 10-K.
3. Exhibits : See Item 15(b) of this Form 10-K below.
(b) Exhibits.
Exhibit Number Description Incorporated by Reference
Form Exhibit Filing Date
2.1+ Agreement and Plan of Merger, dated December 6 , 2023, by and among SoundHound AI , Inc. , Black Knights Merger Sub I, Inc., a Delaware corporation, Black Knight Merger Sub II, LLC, a Delaware limited liability company and Syn q3, Inc. *
8-K 2.1 12/07/23
3.1 Second Amended and Restated Certificate of Incorporation of SoundHound AI, Inc.
8-K 3.1 05/02/22
3.2 Amended and Restated Bylaws of SoundHound AI, Inc.
8-K 3.2 05/02/22
3.3 SoundHound AI, Inc. Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock.
8-K 3.1 01/24/23
4.1 Amended and Restated Warrant Agreement.
8-K 4.1 05/02/22
4.2 Form of Specimen Class A Common Stock Certificate .
S-1 4.2 05/16/22
4.3 Form of Specimen Warrant Certificate .
S-1 4.3 05/16/22
4.4 Amended and Restated Warrant Agreement .
8-K 4.1 05/02/22
4.5 Form of Class A Common Stock Purchase Warrant
10-Q 4.1 05/12/23
4.6 Description of Securities
10-K 4.5 03/28/23
10.1# SoundHound AI, Inc. 2022 Incentive Award Plan.
Proxy Statement Annex D 04/08/22
10.2# SoundHound AI, Inc. 2022 Employee Stock Purchase Plan.
Proxy Statement Annex E 04/08/22
10.3# Form of Restricted Stock Unit Agreement.
8-K 10.8 05/02/22
10.4# Form of Stock Option Award Agreement.
8-K 10.9 05/02/22
10.5 Form of Indemnity Agreement.
8-K 10.10 05/02/22
10.6# Employment Agreement with Keyvan Mohajer, Chief Executive Officer, dated June 2, 2022 .
8-K 10.1 06/08/22
10.7# Employment Agreement with Nitesh Sharan, Chief Financial Officer, dated June 2, 2022 .
8-K 10.2 06/08/22
10.8# Employment Agreement with Timothy Stonehocker, Chief Technology Officer, dated June 2, 2022 .
8-K 10.3 06/08/22
10.9# Non-Employee Director Compensation Policy .
8-K 10.4 06/08/22
10.10 Form of Preferred Stock Purchase Agreement.
8-K 10.1 01/24/23
10.11+ Senior Secured Term Loan Agreement
10-Q 10.1 05/12/23
10.12 Form of Controlled Equity Offering Sales Agreement
S-3 10.1 07/24/23
19.1* Insider Trading Policy
21.1 Subsidiaries of the Company.
8-K 21.1 05/02/22
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23.1* Consent of PricewaterhouseCoopers
23.2* Consent of Armanino LLP
31.1* Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1* Executive Compensation Clawback Policy
101.INS Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
____________________________
* Filed herewith.
** Furnished herewith.
+ The Company agrees to furnish supplementally to the SEC a copy of any omitted schedule or exhibit upon the request of the SEC in accordance with Item 601(b)(2) of Regulation S-K.
# Management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SoundHound AI, Inc.
Date: March 1, 2024
/s/ Dr. Keyvan Mohajer
Name: Dr. Keyvan Mohajer
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Name Position Date
/s/ Dr. Keyvan Mohajer Chief Executive Officer and Director March 1, 2024
Dr. Keyvan Mohajer (Principal Executive Officer)
/s/ Nitesh Sharan Chief Financial Officer March 1, 2024
Nitesh Sharan (Principal Financial and Accounting Officer)
/s/ James Hom Director March 1, 2024
James Hom
/s/ Dr. Eric Ball Director March 1, 2024
Dr. Eric Ball
/s/ Larry Marcus Director March 1, 2024
Larry Marcus
/s/ Diana Sroka Director March 1, 2024
Diana Sroka
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